Monthly Archives: October 2016

Are you sure about that?

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Tech billionaire Peter Thiel s taking a lot of heat for his support of Republican presidential candidate Donald Trump. People are enraged that Thiel, who happens to be a PayPal co-founder, had nothing better to do with his money than throw $1.25 million into Trump’s campaign coffers. In fact, there are some who would like to see Thiel ousted from his board positions at Facebook and Y Combinator. However, Mark Zuckerberg has already said he wouldn’t do that and while Y Combinator CEO Sam Altman can’t stomach Donald Trump, he also has no plans to boost Thiel despite his political leanings. “What Donald Trump represents isn’t crazy, and it’s not going away,” Thiel said during his speech at the National Press Club in Washington where he griped about all the problems that America continues to face. From not benefitting from free trade, to watching taxpayer money go down the toilet to fund overseas conflicts, to raging about America’s over-priced healthcare system, Thiel’s speech had all the makings for a Trump rally. Well, except for assaulting women and imposing bans on Muslims entering the U.S. At least Thiel does not agree with all of Trump’s statements and sentiments and he even finds Trump’s comments about grabbing women “clearly offensive and inappropriate.” And that is oddly reassuring.

Trump-ed Up Currency…

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Speaking of the election…The peso, while maybe not the preferred currency for many, is actually a fairly reliable gauge of how the markets feel about our Presidential candidates. Today, the Mexican currency was down as the FBI investigation of Hillary Clinton’s emails on Anthony Weiner’s computer continues to rear its ugly inconvenient head. The Peso favors Hillary and when she does well, it goes up. Following the debates, the peso experienced a nice boost, as it was not keen on Trump’s plans to build a wall along the Mexican border and renegotiate NAFTA with terms more favorable to the United States. Back in September, the peso hit a record low when Trump began making considerable gains in the election. But alas, it was news of this latest FBI investigations that sent the peso tumbling to its worst fall in seven weeks. On the bright side, if you can call it that, today the dollar rebounded signaling that the investigation isn’t affecting the U.S. currency. It also presumably means that the dollar would like to see Clinton installed in the White House.

No kidding…

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Speaking of things that make you sick, we now shift our attentions to Lumber Liquidators and its ongoing saga over its formaldehyde-laced flooring. Investors had hoped the stock would rebound right about now. But those hopes were dashed when the company reported its third quarter earnings with the stock taking a 14% hit. The company posted an $18.4 million net loss, losing 68 cents per share, which was way over the expected 21 cents per share loss. The worst part of that figure was that the loss was larger than expected as legal fees continue to plague the company and no timeline has been established for when the company will finally settle its litany of lawsuits. Interestingly enough, sales were actually up and hit $244 million, beating expectations of $232 million. Who would have thunk it? In the meantime, the company saw half its value go down the proverbial toilet since the scandal broke out in March, courtesy of “60 Minutes” and its relentless investigative journalism. At least the U.S. Consumer Product Safety Commission ended their investigation back in June, issuing no recall. Shares closed at $15.51.

Booyah!

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Tesla’s CEO Elon Musk is super-pleased with himself after his electric car company posted a quarterly profit for the second time since the company went public. The first time that happened was waaaaay back in 2013. And Musk is banking on the fact that he can pull it off again next quarter. The news was particularly welcome to Musk since he is eager to merge Tesla with his other company, SolarCity. Except investors aren’t as enthusiastic about the prospect or presumably the $2.6 billion cost of the merger. But come November 17 Musk is going to find out if shareholders will have a change of heart and are willing to embrace the move when a vote takes place. In any case, Tesla’s profit came in at a very lofty $21.9 million with a record $2.3 billion in revenue. That would be a 145% increase over last year’s same quarter revenue. Yes you read that right. The company also scored 14 cents per share when analysts only expected 4 cents. Add that to the fact that last year the stock lost 58 cents per share and we’ve quite a nice comeback story. So what made this quarter different from all other quarters? Ramped up production of Tesla’s Models S sedans and Model X Crossovers. With Musk urging employees to move the vehicles with all their heart and soul, a 92% increase was seen on deliveries of 25,185 cars. But it wasn’t just the current crop of cars that contributed to Tesla’s winning quarter. Apparently, 373, 000 people already pre-ordered the $35,000 Model 3, which won’t even hit the streets until 2017.

Boohoo…

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Twitter announced its third quarter results and yet again, failed to impress anybody. One of the more significant highlights, or rather lowlights, is the company’s decision to lose about 9% of its workforce, or roughly three hundred employees, out of over 3,800 worldwide. That number could go higher but the ultimate goal is to help the company reorganize sales, partnerships and marketing efforts. And who doesn’t like to reorganize, right? The social media company did manage to pull down revenues of $616 million, beating estimates of $605.5 million. Some might consider that an impressive achievement. Except it’s not, since it marked Twitter’s ninth straight quarter of declining growth. And while the company also earned 13 cents per share, once again beating estimates of just 9 cents, growth of monthly active users stayed relatively flat, despite all kinds of exciting new changes. In the meantime, both Disney and Salesforce.com have passed on potentially acquiring Twitter, as CEO Jack Dorsey said that he’s done talking about reports of possible acquisitions.

That’s NYSE…

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Chinese company ZTO Express made its big Wall Street debut today but failed to dazzle the Street. Unlike the Chinese IPO darling of 2014, Alibaba, ZTO dished out over 72 million shares for $19.50 a pop, only to open today for the first time on the New York Stock Exchange at $18.40. The stock later slid even lower to $17.70. But considering that the company’s original range fell between $16.50 – $18.50, its slide isn’t exactly tragic. Just disappointing. In any case, ZTO still managed to raise $1.4 billion and the company plans to use $720 million of that to purchase more trucks, land, facilities and equipment. In other words, big expansion plans are in the works. As a package delivery company, it handled close to 21 billion parcels just in 2015. It should come as no surprise, however, that ZTO’s main business deals with delivering shipments for Alibaba. In fact, Alibaba accounted for 75% of ZTO’s business in the first half of the year. You might be wondering why Chinese companies like to list on stock exchanges in the United States. Well, for one, there are currently about 800 companies lined up in China who have filed applications to list on indexes on the country’s indexes. It’s a considerably slower process and some feel it’s less reliable. Besides, given the volatility of the Chinese economy, raising money in U.S. dollars as opposed to a weaker Chinese currency only sweetens the pot for plenty of companies.

Shot to the heart…

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EpiPen, which currently controls 95% of the auto-injector epinephrine market, now has to scoot its greedy butt over to make way for a much-needed competitor. Privately-held Kaleo Pharma is bringing back Auvi-Q, the auto-injector device that was taken off the market back in 2015 because of dosage delivery problems. Apparently the problems have been fixed and you can expect to see Auvi-Q back on the shelves in the first half of 2017. However, before you breathe a sigh of relief, experts have said that the price for Auvi-Q might not be all that competitive. In fact, between 2013 – 2015, Kaleo’s price hikes matched Mylan’s and the cost for the auto-injector might go for $500, just $100 less than EpiPen’s highly-criticized $600 2-pack. Make no mistake. Kaleo’s no more an angel in the pharmaceutical industry than Mylan is. The company is also known for making Evzio injectors which use naloxone to treat opioid-overdoses. Once upon a very short time ago – like a few years – the devices cost $690. But not anymore, as the devices go for $4,500 per two-pack. Kaleo has promised that its Auvi-Q device will be affordable and expects insurance companies to help see that promise through. In the meantime, as Mylan’s generic version of its EpiPen is expected to go for $300, the FDA nixed Teva Pharmaceuticals application for a generic version of the EpiPen citing “major deficiencies.” Yikes.

Rock on, Rwanda!

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Just when you thought the gender pay gap couldn’t get any worse, along comes the World Economic Forum to tell us otherwise in its Global Gender Gap Report. The study examined 144 countries and took into account all kinds of factors like economic opportunities, political empowerment and education. The study disconcertingly found that if we wait 170 years, that pesky gender gap might actually close. But who wants to stick around until the year 2186? Sadly, last year’s projection had us holding our collective breath until 2133 but in all fairness, if we actually start to do things correctly, the gender gap could “could be reduced to parity within the next 10 years.” That’s got to be somewhat reassuring, right? One of the more unpleasant nuggets in the report illustrated that average female salaries were half those of men and disturbingly enough, education gains didn’t necessarily help women increase their salaries. Iceland, Finland, Norway, Sweden and Rwanda took the top five spots in that order. (Yes, Rwanda). I’m thinking maybe it’s time to start poaching our political leaders from those countries. Just a thought. The United Kingdom ranked twentieth, even with a female Prime Minister. Go figure. And even though the U.S. ranked twenty-eighth last year, this year the Land of the Free fell to spot number 45, apparently due to a decline of women in the labor force. At least the U.S.’s ranking wasn’t as bad as Yemen, which ranked dead last. Saudi Arabia, Syria and Pakistan also claimed the loser spots which I suppose makes sense considering those countries tend to treat women as property instead of human beings.

It still hurts…

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After just 13 days into his tenure, Wells Fargo already has its latest CEO, Tim Sloan, apologizing. Of course, that apology is over the account scandal that already cost the bank $185 million in fines from the Consumer Financial Protection Bureau. But what’s different about this apology is that Sloan was actually addressing the bank’s 260,000 employees. Which is a step up from last month when former Wells Fargo CEO John Stumpf took to blaming 5,300 lower-level employees instead. However, karma is not done with the bank just yet as Wells Fargo could end up eating $8 billion in lost business in the next 12-18 months since approximately 14% of its current customers are looking to switch to more trust-worthy competitors. As Sloan noted in his apology,“many felt we blamed our team members. That one still hurts, and I am committed to rectifying it.” And so the bank is hiring culture experts to fix the weaknesses that led to this ugly episode. Of course, cultural weaknesses aside, the bank can look forward to both criminal investigations and class-actions suits. Which is only fair considering that the wrongfully blamed lower-level employees – many whom made less than $15 per hour – were met with retaliation after they dared to call in to the bank’s internal ethics hotline.

Coffee, Tea or Affordable Travel?

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There’s a one year old tech start-up that wants to get you traveling. It’s called Airfordable, and it lets users pay for airline tickets through installments. But first you need to take a screenshot of your itinerary and upload it to the site. Then the company sends you a payment plan. If you want to make it yours, you need to shell out a third of the price for the initial deposit. But once your ticket is paid off, Airfordable will present you with an e-ticket and you’re well on your way. Co-founder and CEO Ama Marfa came upon the idea whilst in college and unable to afford the $2,000 airfare to fly home and see her family in Ghana. And she wasn’t the only one as several students, both domestic and international encountered similar challenges. So how does Airfordable make a buck? By simply adding a service fee of between 10% – 20% spread evenly across the payments. If a user defaults or needs to change plans, all the money that was paid, minus the initial deposit, gets put back into their Airfordable account, where users have up to a year to use the money towards a different flight. As with any ambitious start-up, the company plans to branch out into vacation packages and hotels. Airfordable already has 27,000 users and scored a seed round of funding from Y Combinator. Not bad for a company that came into existence after America’s abysmal choices in the presidential primaries.

What are you going to do with all that free time?

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The drama continues at embattled Wells Fargo but at least John Stumpf has finally threw in the executive retirement towel yesterday. At first denying and then blaming 5,300 terminated low-level employees, Stumpf managed to incur the wrath of investors, lawmakers and consumers. Oh my! His abysmal handling of the scandal that involved the opening of countless fraudulent accounts gained extra special attention from Senator Elizabeth Warren. And if for some inexplicable reason you feel sympathy for Mr. Stumpf, then don’t. He’s walking away with over $133 million – and that’s after a $41 million clawback in unvested options courtesy of Congress. That $130 million figure is not a typo. In case you’re wondering how on earth he will be walking away with more money than those 5,300 terminated employees probably made in the last ten years combined, he’s entitled to 2.4 million shares, $4.4 million from deferred compensation plus another $20 million from his pension account. But take heart that he received no severance. Isn’t that reassuring? But that’s not his only source of income. For now anyways. While Stumpf has been CEO at Wells Fargo since 2007, he also still sits on the boards of Target and Chevron and collects…wait for it…about $650,000 frrm those positions. Both Target and Chevron have yet to take an official position on whether Mr. Stumpf will continue his roles at those organizations. But judging by how events have been unfolding, he might just end up with a lot more free than he anticipated.

Karma…

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Delta Airlines took a profit hit for the third quarter. The airline lost $150 million from its massive tech outage that saw the cancellation of 2,300 flights over the course of three days back in August. Even though analysts expected that, Delta still earned $1.3 billion, a 4% drop over last year at this time, but still adding up to $1.70 added per share. The company took in $10.5 billion in revenue, which is not as impressive as one might think considering that it was a 5.6% decrease and a $724 million drop from the same time last year. And yes, about $100 million of that was from the outage. In any case, analysts wanted to see revenues of $10.55 billion. So no matter how you crunch those numbers, they disappoint. Part of the problem was that the airline had too many seats – a fact that was not lost on the number crunchers. Delta will scale back its seat offerings next year in an effort to boost prices. Something to look forward to. Because fuel prices are still a relative bargain, Delta got away with spending just $1.4 billion, 22% less than it did during the same time last year. But experts don’t expect that to happen again. Shares for the airline are down 23% for the year, which only adds to the weirdness surrounding the sudden departure of executive chairman Richard Anderson just two days ago.

Adios…

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The peso is rising and ironically, Mexico has Donald Trump to thank. Who would have thunk it? The more Donald’s chances for the presidency dwindle, the higher the peso goes. There is an O’Henry novel in there somewhere. The peso, in fact, had hit a record low just hours before the first debate on September 26 after falling 9% against the dollar this year. Then this weird thing happened: the Mexican currency rebounded when Hilary Clinton went into full-court debate/attack-mode; or maybe from the negative momentum spewing from Donald’s Trump’s mouth – you decide. However, the peso did lose some of its gains when Trump began attacking Clinton’s use of her private e-mail server and all of her own shifty activities. But over the weekend the peso has been enjoying some new impressive gains and even surged to a one-month high, at least in part owing to Trump’s 2005 “Locker Room Talk” video which viscerally offended…everyone. Of course, we mustn’t rule out his performance atSunday night’s debate. His showmanship seemed to just about clinch the demise of his presidential aspirations and also presumably helped the peso gain some much needed mojo. I guess that’s what they call karma. After all, he did say that if he wins, he’s going to slap some hard-core tariffs on Mexican imports and that’s a scary thought for a country who sees 80% of its exports going to the U.S. Trump wants to chuck NAFTA, or at the very least, renegotiate the terms so that they are more favorable to the U.S. That’s besides having our neighbor to the south foot the bill for a wall to keep out immigrants.

Loser…

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In other Trump news, the Trump Taj Mahal closed its doors…for good. Wish you could say the same of the candidate with the same name, huh? Trump opened the Trump Taj Mahal in 1990, and billed it as “The eighth wonder of the world.” Try not to throw up in your mouth. It was one of the largest casinos in the world and held the dubious distinction of having gone through multiple bankruptcies. Talk about the Trump theme song. In case you were hoping this closure puts a ding in Trump’s armor, don’t bother. He hasn’t owned it for years. He lost his share to bondholders and then resigned as chairmen. The property belongs to activist-investor Carl Icahn, and after massive losses and a breakdown in negotiations with unions, 3,000 employees now find themselves out of work. Not that the news came as any great shock seeing as how the closure was announced in July. A thousand union members went on strike back then, in part angered that they only saw 80 cents per hour in raises for the last twelve years. Believe it or not Trump hadn’t even owned the casino for much of that time. So we don’t get to completely blame him. Meanwhile, the cost of living in the A.C. went up 25% for the same period so things weren’t adding up for all the casino’s employees. Union members wanted healthcare and pension benefits. Icahn said his last bid offered medical benefits, though the union still didn’t bite. Keeping the casino open would have meant more than $100 million in losses, that would have been in addition to the $350 million that the casino lost in the last few years. And nobody I know likes to lose money. Especially when there are so many commas involved.

Winner winner…

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Now let’s move on to two people who actually make the world a better place. Too bad neither one of them is running for President. Oh well. But I guess winning the Nobel Economics Prize probably means you’re over-qualified for the position anyway. In any case, congrats are in order for MIT’s Bengt Holmstrom and Harvard University’s Oliver Hart. Their work on “contract theory” is so impressive that it seems only fair to hand them the prestigious award, which also comes with a $928,000 cash prize. As for contract theory, it deals with how to best design contracts, taking into consideration human behaviors in business. Whether you like it or not, contract theory has played a big part in executive pay. It helps out in all kinds of situations like how to effectively run corporations, dole out corporate compensation and even formulate bankruptcy legislation. It also studies the implications of workplace pay, like whether managers should get bonuses or stock options, or if teachers and healthcare workers should be paid a fixed rate or a salary that is performance-based. Contract theory also examines whether certain institutions, like schools hospitals and prisons, would fare better if they were privatized. Although, I find it somewhat disconcerting that prisons were lumped with hospitals and schools. Just saying.